Federalism on Trial at the Supreme Court

Justices raised questions about the fundamental relationship between the federal government and the states.

The Supreme Court’s deliberations over the constitutionality of the Affordable Care Act’s Medicaid expansion hinged on fundamental questions about the relationship between the federal government and the states. Does the ACA represent a transition from “cooperative” federalism to “coercive” federalism by encroaching on the 10th Amendment, as the 26 opposing states suggest?

Prior to this week’s arguments, Governingasked some legal experts to speculate on the potential implications for federalism if the Medicaid expansion is overturned. Some, including 13 states that filed an amicus brief with the court in support of the law, have argued that such a decision might set a precedent that could delegitimize other programs (such as education and transportation) in which federal funding is predicated on some conditions set by Congress.

While much of Wednesday’s oral arguments centered very specifically on the ACA and the Medicaid expansion, those broader issues were raised by justices themselves.

“Are you suggesting that at a certain point the states would have a claim against the federal government raising their taxes because somehow the states will feel coerced to lower their tax rate?” Justice Sonia Sotomayor, considered a supporter of the ACA, asked Paul Clement, former Solicitor General and attorney for 26 states opposing the law, after Clement said that increased federal taxes reduced the states’ ability to impose their own taxes.

“No, I’m not,” Clement replied.

The states' argument focused on the "sheer size" of the Medicaid program, one of the biggest budget items for states and a program for which the federal government provides at least a 50 percent match. Under the ACA, if a state does not adopt the ACA's Medicaid eligibility standards (up to 133 percent of the federal poverty level), the Secretary of Health and Human Services can withhold some or all of its federal contribution. That amounts to coercion, Clement argued, because states can't realistically be expected to opt out of Medicaid.

Sotomayor turned to the fact that the federal government will provide 100 percent of the funding for the newly eligible Medicaid population until 2016.

“What you're saying to me is, for a bankrupt state, there's no gift the federal government could give them ever, because it can only give them money without conditions,” Sotomayor said. Clement again asserted that he wasn’t making that claim.

Justice Ruth Bader Ginsburg, another expected supporter of the law, raised the example of Title IX and higher education. Under that statute, colleges and universities must create athletic programs for women to receive some federal funding for other academic purposes.

“Why doesn't your theory, if your theory is any good, why doesn't it work any time… someone receives something that is too good to give up?” Ginsburg inquired.

Clement argued that there was a distinction between federal education funding and Medicaid because the latter is a jointly administered program.

Justices Stephen Breyer and Elena Kagan, also members of the court’s liberal block, challenged Clement with the notion that, if this expansion of Medicaid is unconstitutional, then other expansions of the program (such as the Children’s Health Insurance Program) could also be nullified. “Doesn’t that mean that Medicaid is unconstitutional now?” Kagan asked.

Clement countered that those expansions, while accepted by every state, were more explicitly voluntary.

Sotomayor summarized her objections toward the end of Clement's argument.

"My greatest fear, Mr. Clement, with your argument is the following: The bigger the problem, the more resources it needs," she said. "We're going to tie the hands of the federal government in choosing how to structure a cooperative relationship with the states. We're going to say to the federal government: the bigger the problem, the less your powers are."

When Solicitor General Donald Verrilli stepped up to defend the government’s position that the Medicaid expansion was constitutional under the Spending Clause, Justices Antonin Scalia and John Roberts pressed him to explain if there are any limits to the conditions that Congress can place on states to receive federal funding.

When Verrilli offered the example of Congress forcing state governments to relocate their statehouses, Scalia interrupted. “Short of that, they can make the state do anything at all?” he asked.

Verrilli responded that any conditions must be “germane” (there must be a relationship between the condition and the spending it affects) before Roberts cut in, saying Verrilli hadn’t addressed the central question of whether coercion is even possible.

“The concern is, if you can say: ‘If you don't agree with this, you lose all your money,’ whether that's really saying the limitation in the Constitution is… largely meaningless,” Roberts said. Verrilli replied that he didn’t believe the current case presented that question.

Justice Samuel Alito, perceived as an opponent of the ACA, then offered his own hypothetical: what if the federal government proposed an education tax that matched all state spending on education? Congress would offer states the opportunity to have fully federal-funded education, but it would come with certain conditions (such as teacher tenure, class sizes, school calendars, etc.).

If states declined to take that deal, they would lose all their existing federal education funding. In addition, their citizens would be forced to pay the special federal education tax and a state tax to replace the lost federal funding.

“Would that be the point where financial inducement turns into coercion?” Alito asked Verrilli. The Solicitor said he didn’t believe it would because states would still have a choice.

“You might be right,” Alito conceded. “But if that is the case, then there is nothing left of federalism.”

The federalism issue might have been best summarized in an exchange between Roberts, who argued from both sides during the debate and is considered a swing vote on the expansion, and Clement. Clement had repeated the injustice of forcing states to accept new conditions or put all their funding for a 45-year-old program at risk when Roberts interjected.

“Well, why isn't that a consequence of how willing (states) have been since the New Deal to take the federal government's money?” Roberts said. “And it seems to me that they have compromised their status as independent sovereigns because they are so dependent on what the federal government has done.”

“They tied the strings,” he continued. "They shouldn't be surprised if the federal government is going to start pulling them.”

“With all due respect, Mr. Chief Justice,” Clement replied, “I don't think we can say that because the states have gotten pretty dependent, let's call this whole federalism thing off.”